Tax changes of 2011 to note!

Tax season is nearly over for the 2011 tax year: just about 10 days remain until Tax Day (remember that you have until April 17, 2012, to file your 2011 individual federal income tax return).

If you haven’t yet filed, here’s your chance to get caught up on what was new for the 2011 tax season:

1. There is no Schedule M and no Making Work Pay Credit.                         

    The Making Work Pay Credit which was available for taxpayers in 2009 and 2010 is not available for 2011. That means there is no Schedule M to file and there is no additional credit for the year.

2. There is a payroll tax cut for employees. 

For 2011 (and now, for 2012), employees who receive a form W-2 received a tax break of 2% on FICA contributions during the year: instead of paying in at 6.2% for Social Security taxes, contributions were 4.2% for Social Security taxes. Contributions for Medicare remained the same. The break is automatic (meaning no forms or schedules to fill out) and it will not affect your 2011 federal income tax return since it’s tied to Social Security payroll taxes. The benefit maxed out when you hit the Social Security cap ($106,800 for 2011). Taxpayers who didn’t pay into the Social Security system during the year will not receive a benefit.

3. There is a payroll tax cut equivalent for self-employed taxpayers. 

If you self-employed, you will receive the benefit of the payroll tax cut when you file your federal income tax return in the form of an adjustment to your SE (self employment) tax due. Your SE tax will be reduced by 2%; the SE tax rate of 12.4% is reduced to 10.4%.

4. There’s a new form in town, the federal form 1099-K. The federal form 1099-K, Merchant Card and Third Party Network Payments, is making its debut for the 2011 tax season. Taxpayers who have a credit card merchant account, Paypal account or similar account and otherwise meet the criteria will receive form 1099-K from their service provider.

5. You might see your health care benefits on your form W-2. 

Employers with more than 250 workers must beginreporting on the value of health care benefits paid on an employee’s behalf on forms W-2 in 2012. Some are already doing this for 2011 so if it pops up on your form W-2, don’t panic. The amount appears in Box 12, using code DD. It does not affect your taxable income.

6. Standard deductions haven’t changed much. 

The standard deduction rates are largely the same for 2011. They are $5,800 for single taxpayers or those married taxpayers filing separately, $11,600 for married taxpayers filing jointly and $8,500 for taxpayers filing as head of household. The additional standard deduction allowed for senior citizens and taxpayers who are legally blind is $1,150 for married taxpayers filing jointly and $1,450 for single taxpayers.

7. Personal exemptions haven’t changed much either. 

The personal exemption amount for 2011 is $3,700, an increase from $3,650 in 2010.

8. Brokers are now reporting your cost basis for certain stocks on your 1099-B. 

The 2011 federal form 1099-B,Proceeds From Broker and Barter Exchange Transactions, has new boxes for the date you bought a stock; your cost or basis (including adjustments for commissions and splits); whether your gain or loss was short or long term; and even if the transaction was a wash sale. The new requirements are only required for stock bought on or after Jan. 1, 2011; mutual funds bought on or after Jan. 1, 2012; and bonds, options and private placements bought on or after Jan. 1, 2013.

9. Yet, again, there’s band-aid relief for Alternative Minimum Tax (AMT).

There’s no real reform for AMT… again. What we do have is a small boost in the AMT exemption for 2011 to $74,450 for taxpayers filing jointly, $48,450 for single taxpayers and those filing as head of households, and $37,225 for married couples filing separately. Remarkably, it’s still not adjusted for inflation.

10.  You must check the box, if applicable, for Report of Foreign Bank and Financial Accounts (FBAR). 

No, this isn’t new but the IRS has made FBAR reporting a compliance issue. While FBAR forms aren’t due until June, you may need to to check the applicable box on Schedule B when you send in your return. And this time, the IRS swears that they really, really mean business.

So, there you have it: those are the most noteworthy changes taxpayers realized in the 2011 tax year. It’s a quick and dirty summary. Your situation may require a bit more detail so if you have any questions, check with your tax professional.